Borders.com Charged Me 40 Percent Sales Tax

Reader M bought four books online from Borders for $17.82 and was charged $7.07 in sales tax. Unless the books were cigarettes, there was probably an error on Borders’ end. But M says the bookseller refuses to acknowledge a mistake.

M, who says the order included free shipping, writes:

I made a mistake of ordering 4 book worth $17.82 with two $50 gift cards that came with $5 bonus gift card. For delivery to a Michigan address, I was charged $7.07 tax.

I emailed them first to make sure I was only taxed on the books and not on the gift cards. I was told that the $7.07 tax was calculated on the $17.82 books. Even though this would make it a almost a 40% tax rate.

I emailed them several times and even called them. Their Customer Service cannot even conceive that their computer program could have made a mistake. One lady even told me that the tax was $1.77 per book, even on one book worth $3.14.

It is more likely that I was charged $1.07 for the books (6 percent of $17.82) and was overcharged $6 tax (6 percent of $100 Gift Card with Bonus bundle).

Absolutely, and it’s the law some places that you be charged sales tax on the actual sale price of the items. In other words, the gift cards would be applied to the total price plus tax, not the total price before tax.

I’m not sure how that is obvious. Gift cards are basically cash. Why would you pay sales tax on those? When you go to use them to buy books, won’t sales tax be added to that order as well? Meaning you were double taxed?

If gift cards spend like cash, then the sales tax is applied before you use the cards. In other words, the real total was for the actual retail price of the books plus cash. Then the hundred dollars in gift cards was applied, leaving the amount the gift cards did not cover, plus the sales tax. Gift cards are not “cents off” coupons (for which some areas require the full retail sales tax paid anyway). I mean, think about it. If something is a quarter, and I ring it up and it’s 27 cents, and you have a gift card for a quarter, how much is left? Jesus, how can this not be obvious?

I think you’re mistaken. This customer bought gift cards, not used them. If the order was $117 and she used $100 in gift cards, you’re absolutely correct. M would be taxed on the $117. But M actually bought $17 in books and $100 in gift cards. There should be no tax on buying gift cards.

How did you agree with me and say “absolutely” when it’s clear you thought the OP used gift cards to pay for his order? Clearly, you did not agree because my calculations were based on the OP buying gift cards.

When you “buy” a gift card, you’re not making a purchase. The store is basically holding on to your money until you decide to spend it, but it’s still your money. There is no sales tax when you buy the gift card or gift certificate because there is no sale happening.

The laws dealing with gift cards/gift certificates/store credit differ from state to state. In Missouri, for example, I believe the store is required to turn over any unspent gift certificate after 5 years to the state. The state puts it into their unclaimed funds dept. As the holder of an old/expired gift certificate you can turn it in to the state and get the cash equivalent back (after 5 years). The store of course was able to collect interest on your unspent money for 5 years before turning over the original amount.

Some stores have fees that are deducted from your gift card balance on a monthly or annual basis. They do this to try to get around the escheatment laws, so that by the time the deadline comes around there’s no money left on your balance. These fees are illegal in some states.

The laws differ between gift certificates and gift cards, in some places like New York, gift cards are treated equally under the law, in other places gift cards are ignored by the law. Sometimes the gift cards are actually run by a third party in another state which confuses things even further. So YMMV.

I didn’t post that to mean that Phil’s post was in the wrong, somehow. There’s still the matter that M needs to convince Borders was wrong. He should call Borders customer service again and explain that he was charged sales tax on his gift cards. He should be firm about it, and not budge until they fix the error.

Actually the AG may be interested. A company totals the tax it should have to pay and then pays that amount, they keep any difference (or have to pay it out). What they are actually doing is charging the 1.07 tax and keeping the rest while saying to you it was all tax, and that kind of annoys the state.

I had a similar issue from a shipping company working with Verizon. I ended up getting a refund from Verizon for the whole total of a modem including shipping. Verizon’s total was 5 dollars different than mine. When I took them the receipt I had the CS rep and I noticed that the shipping company told Verizon they added the tax then the shipping charge, while on my bill they put the shipping charge and then added tax to the total. Must have been a good racket before they got sent off to the AG for tax fraud.

Yes – I did a partial chargeback when a merchant (Southwest Airlines Vacation, which is NOT run or owned by Southwest Airlines) would only give me a partial refund. The credit card company had no problem doing it.

Shipping? Many states now allow retailers to charge shipping, and since many sites charge you shipping, then give you a coupon off for the exact amount of it, perhaps they are charging you for the taxable total, before discounts. I know in NJ you have to pay taxes on the price of something, even if it has a coupon.

The other thing I wonder is if it’s possible to be charged tax from both the selling state and the buying state.

Incorrect. The collection of sales tax on shipping and handling is nothing new. 37 States specifically collect sales taxes on shipping & handling fees. The laws of these 37 States have been that way since I started in business in the late 70’s.

Did you use weird legalese to say that Borders isn’t in the wrong if it refunds the excess tax to the customer? Cause there’s still the whole bit about Borders erroneously charging sales tax on gift cards.

And it is definitely an error because I just went to the Borders website, initiated an order for a gift card, and was not given the cost of tax at any point (up to the point right before one would click “purchase”).

You are also correct in that sales tax should not be collected on Gift Cards (there are exclusions but lets not go there) as the sales tax will be collected when the goods are sold.

The no sales tax on Gift Cards is to prevent double taxation, not because Gift Cards are specifically excluded from sales tax collection. Of course there are some goofy arse exclusions in which Gift Cards must be taxed, but those exclusions are not common to typical consumer products.

Sure sounds like the consumer asked for it to be corrected and was told no. That’s why were are here today. It’s one thing to be told that Borders will look into it and get back to him. We don’t have the full story, but I don’t see anything that makes me think the wheels in the background at Borders are turning to fix this problem eventually.

I emailed them several times and even called them. Their Customer Service cannot even conceive that their computer program could have made a mistake. One lady even told me that the tax was $1.77 per book, even on one book worth $3.14.

I’m surprised she could put an order through at all. Every time I check their website to compare prices, it either freezes on me or the search function borks. They do have way better coupons than BN, though. Though less so recently.

Under collect Sales Tax and the AG is going to get all hot and bothered. Under collect enough and the AG is going to have an orgasm just anticipating the legal action.

Over collect? Was the overpayment, as directed by State law, paid to the State? Then all is happy and the AG moves on.

This is one area of State law that is weird. Overpayments have been addressed. The $ is either refunded to the customer (conditional upon the customer being identifiable {ie credit card that can accept a refund} or the customer requesting the refund) or the $ goes to the state.

The only way a business is going to get in trouble is if the business fails to refund (if possible) or if the business refuses to give the $ to the State.

I understand the reason they wouldn’t care, but I’m wondering if this only because most people don’t sit and calculate sales tax if it’s correct. So I’m curious if when there are complaints, and if there’s enough, they don’t want these payments to be noticed by consumers. They’re not going to proactively look for mistakes though.

It seems they applied sales tax to the purchase of the gift cards. Which should not have happened. Sales tax should be applied when the gift cards are redeemed. Pretty simple problem, actually. Borders should have simply said, “Whoops, our bad, here’s a free store credit for $20 or something, and we’ll refund the amount we overtaxed you.”

One key point. Gift Cards can be taxed, but then the sale of the goods is to be tax-exempt. Since that is difficult to handle for a business of consumer products than it is acceptable (and preferred) practice to sell gift cards without sales tax being applied and tax the actual goods.

Ah, but what if you don’t use the whole gift card? Or what if you somehow buy something tax exempt? Or if it’s bought by person A in a taxing state and gifted to person B in a non-taxing state such as New Hampshire or Oregon?

The opposite of your second example is why no sales tax is charged on gift cards: if the cards were sold tax free, and no sales tax was incurred when they were used, people would buy them in Oregon and sell them on eBay for use in states that do charge sales tax. Charging the tax based on the jurisdiction where the final purchase is made is the only solution.

Definitely sounds like he paid sales tax on the gift cards. I’m wondering if the “bonus gift cards” transformed the gift cards into taxable items. I’ve seen many situations like this. In CA, order a sandwich cold, no tax. Order in hot, tax. Nationwide, order a digital service with no physical product, no tax. Order a digital service where they get you a physical software disk, tax. Borders isn’t being honest with him but the bonus gift cards probably transformed the items into taxable… so you’re paying $6 in tax for those $10 in gift cards…

Gift cards are not “taxable” because they are treated like cash. Any sales tax would be paid with and on whatever is purchased through the gift card, tax will be extracted at that time. UNLESS, the merchant indicated that taxes would be covered at the time of the purchase.

I could be possible someone is double dipping and trying to keep the difference.

where there any coupons or credits involved in some states (like cali) the have to calculate tax. before certain promos like when i bought my MP3 player i got $100 instant rebate for signing up for audible.com. or when you get a free/discounted cell phone.